Board seeks change to pot tax; Drummond bill would clear records

The Alaska House Finance Committee heard testimony Feb. 6 on the Marijuana Control Board’s role regulating the industry and an appeal to change the current tax structure of $50 per ounce.

The Finance Committee was hearing about at House Bill 273, sponsored by Rep. Sam Kito D-Juneau, a measure that extends the life of the Marijuana Control Board beyond the June 2018 sunset.

A legislative audit of the Marijuana Control Office by the state has recommended extending the board through June 2024. It is one of 11 professional licensing boards up for renewal this session.

Testimony focused on how far the burgeoning marijuana industry has come since Alaskans legalized it through a ballot initiative in 2014. Legislators quizzed Alcohol and Marijuana Control Office Executive Director Erika McConnell on whether the agency will be self-supporting by 2020.

It is written in statute that by that date, fees from professional licenses need to fully fund the operations of AMCO.

The money comes to AMCO from $5,000 annual licensing fees paid by cultivation facilities, retailers and manufacturers. Other fees that go to support AMCO are $1,000 license fees charged limited cultivators per year, $1,000 per year for testing labs and each $1,000 application fee for establishing a business.

McConnell answered that she’s “confident the industry will be stabilized enough to fully fund ourselves on license fees by that date.”

So far, from October 2016 through December 2017, the industry has paid $6.4 million to the state’s general fund as taxes, McConnell told them, though tax revenue is separate and does not go to fund AMCO.

Legislators also wanted to know if the current tax structure is working. McConnell let legislators know of the board’s own analysis that the current $50 per ounce flat tax may be artificially stifling prices. The board wants to see the legislature approve changes to a percentage-based tax.

At its Jan. 24-26 meeting, the board approved drafting a resolution to the Alaska Legislature requesting a change to the tax structure, McConnell said. The resolution will be rolled out in more detail at the April 3 board meeting in Nome.

Board Chair Mark Springer of Bethel, representing rural Alaska, voiced concerned the board keeps approving new business licenses — there were 22 approvals at the January meeting — without assurance “it’s not maxing out what the market can support.”

At last count through December 2017, 149 cannabis businesses were operating in Alaska. In addressing the Finance Committee, Springer said he also didn’t want AMCO to be “kept to a quota” in order to fund its functions.

The current flat tax doesn’t give as much flexibility as percentage-based tax, testified Bruce Schulte. Schulte is the spokesperson for the Coalition for Responsible Cannabis Legislation, the group that advocated for the successful ballot measure. He was also the first chair of the Marijuana Control Board until he was removed by Gov. Bill Walker in 2016 after clashing with the McDonnell’s predecessor Cynthia Franklin.

Ballot Measure 2, which legalized commercial marijuana, stipulates an excise tax of $50 per ounce for the flower portions of the plant. There is a separate tax of $15 per ounce on the trimmings of the plant.

“I do not envision the base $50 excise tax changing in 2018 as that would require legislative action at a time of much more pressing priorities,” Schulte testified. “However, I believe that in 2019 this would be a valid topic to revisit with an eye toward shifting the tax in the production chain and possibly adopting a percentage tax instead of a flat tax — allowing for some stability in the face of fluctuating prices.”

Presently, board member Brandon Emmett and other members are working on specific tax recommendations to the legislature. During the last board meeting he mentioned his concern the industry could hit a wall, or rather, a cliff, he said.

“There’s been a lot of discussion on the number of licenses,” Emmett said at the Juneau meeting. “And on the amount (of marijuana) they said they can produce. We may be headed for a fiscal cliff in the marijuana industry because of our tax structure, which is keeping marijuana at an artificial price point.”

Even the new, non-confirmed board member, North Star Borough Police Chief Travis Welch, delved into the debate and offered to help draft the resolution to the legislature. He argued that prices are subject to the economics of an industry, and “this flat tax doesn’t allow for the market to absorb that.”

At $50 tax per ounce, the cost on a pound of marijuana is $800 in taxes.

McConnell noted this to the finance committee.

“In other states, it is less; $100-$200 a pound,” McConnell said. “It (the retail price) can’t fluctuate with supply and demand.”

Also during the committee meeting, they heard the four recommendations for improving the AMCO from the Legislative Auditor Kris Curtis. The Legislative Audit Office has recommended the board be renewed for another six years.

After an October 2017 audit, they recommended the following changes:

• That the board members, the AMCO director, and enforcement supervisor work together to formally establish an enforcement plan to direct AMCO’s limited enforcement resources.

• The board and AMCO management needs to better monitor and track all actions taken on complaints to ensure they are resolved in a timely manner. Complaints are only tracked if they result in an inspection or investigation. AMCO needs to also show why it decided not to investigate a complaint.

• The AMCO director should develop written procedures for establishing the expiration dates of marijuana handler permits. A mix-up on permit expiration dates was found in 47 of 53 permits.

• The AMCO director should segregate the duties for calculating and sending fees to local governments. A system of checks and balances would be better assured if more than one person were doing both jobs, the report states.

Drummond bill would clear pot records

An Anchorage legislator found 719 people convicted of low-level marijuana crimes who would qualify to get their records scrubbed if her proposed bill is passed.

Rep. Harriet Drummond, D-Anchorage, is proposing House Bill 316 that would seal public records related to charges of marijuana possession of an ounce or less and six or fewer marijuana plants. The bill also calls for the Alaska CourtView system, which includes names and criminal records of individuals, to be wiped clean of all marijuana convictions classified as a non-violent offender misdemeanor.

In looking at Alaska Court System numbers, Drummond found that about 100 people per year between 2007-15 had been convicted of possession of small amounts and were classified as non-violent offenders.

“This bill is not a get out of jail card,” Drummond said. “It’s a reasonable approach to allow Alaskans to get jobs currently unavailable to them because they did something that is now entirely legal.”

Both Vermont and California are considering the rationale of forgiving small time violators after those states legalized marijuana. In Vermont, 192 such people were pardoned by the governor, Drummond said.

California voters made the law retroactive, allowing people to petition to overturn former convictions for possession and distribution of marijuana.

But according to the Sacramento Bee, it’s proving an expensive proposition because state courts received nearly 5,000 petitions in the first 11 months after marijuana legalization was enacted.

The California court system calculates 460,000 would ultimately qualify to have their records scrubbed, placing a huge burden and cost on the courts. Officials are currently debating how to avoid that.

In Alaska, Drummond wants to avoid burdening the Alaska Court System administrators. Her bill wouldn’t make the action of scrubbing records automatic. People would need to petition the court, as they can now when accused of certain crimes for which they were not convicted.

And so far, numbers indicate it would impact a limited amount of people. The bill does not benefit drug dealers, she wanted to emphasize.

“It’s not violent offenders; they wouldn’t be eligible for this,” Drummond said. “This would be young people who did something stupid and now have a black mark or moms and dads from way back in the day when they did something stupid then, but it’s legal now.”

Drummond has heard from people about the punishment continuing for decades, she said with a criminal history that can keep someone from qualifying for jobs or housing.

As the public debates HB 316, she hopes constituents will let her know their stories of how lives may have been impacted after low-level drug convictions.

In Alaska, marijuana laws likely caused public confusion about what was and wasn’t allowed in the wake of the 1975 Raven Decision and then medical marijuana legalization in 1998, Drummond noted.

The Alaska Supreme Court held in Raven v. State that the Alaska Constitution’s right to privacy protects an adult’s ability to use and possess a small amount of marijuana in the home for personal use. Medical marijuana use was legalized by voter initiative in Alaska in 1998 but did not allow for legal sale of plants or marijuana to those qualifying as patients in need of it.